What’s behind the rising cost of insulin?

She drew the life-saving medication into the syringe, just 10 cc of colorless fluid for the everyday low price of, gulp, several hundred dollars. Was that a new chemotherapy, specially designed for her tumor? Was it a “specialty drug,” to treat her multiple sclerosis? Nope. It was insulin, a drug that has been around for decades.

The price of many drugs has been on the rise of late, not just new drugs but many that have been in use for many years. Even the price of some generic drugs is on the rise. In some cases, prices are rising because the number of companies making specific drugs has declined, until there is only one manufacturer left in the market, leading to monopolistic pricing. In other cases, companies have run into problems with their manufacturing processes, causing unexpected shortages. And in infamous cases, greedy CEOs have hiked prices figuring that desperate patients would have little choice but to purchase their products.

Then there’s the case of insulin. No monopoly issue here — three companies manufacture insulin in the U.S., not a robust marketplace, but one, it would seem, that should put pressure on producers. No major manufacturing problems, either. There has been a steady supply of insulin on the market for more than a half-century. And there haven’t been any insulin company executives I know of who have been hustled in front of grand juries lately.

Yet insulin prices are rising to dizzying heights. In 1991, according to a recent study in JAMA, state Medicaid programs typically paid less than $4 for a unit of rapid acting insulin. After accounting for inflation, that price has quintupled in the meantime.

What explains the gravity-defying cost of insulin? I am not an expert on pharmaceutical pricing, but a few factors go a long way to explaining insulin prices. First, the insulin marketplace has been characterized by continual product upgrades. You see, there’s not just one chemical that makes up all insulin products. Instead, insulin treatments are a family of products, each with slightly different chemical makeup that influences things like how quickly the medicine is absorbed into the blood stream. Manufacturers have been toying with insulin molecules since at least 1936, when the manufacturer added protamine to insulin molecules to extend the duration of the chemical’s activity. In the 1960s, companies began synthesizing insulin, rather than harvesting it from pancreatic tissue. In the late 70s, they began producing insulin through genetic engineering.

So when I said that the price of insulin had quintupled over the decades, we have to keep in mind that today’s insulin is not the same as yesterday’s.

Newer forms of insulin are more expensive than older ones. Consider this figure, from the JAMA study mentioned above. It tracks how much money state Medicaid programs have been paying for insulin over the past 25 years. Two things to note in this picture. The line on top, the higher-priced insulin products, tend to be newer products. Just as importantly, both lines are moving up, meaning that the inflation adjusted price of both new and old drugs is rising over time:

In other words, the newness of some insulin products does not fully explain this steep climb in insulin prices. Then what else contributes to such prices hikes?

As I mentioned above, the figure represents the price that Medicaid programs have been paying for insulin over the years. For some reason, Medicaid programs aren’t negotiating effectively with insulin manufacturers. I expect that programs face pressure from patients and providers to make sure all insulin formulations are covered. In some cases, in fact, they’re required to keep certain products on the market. Some states are small enough that they don’t have much leverage over the companies. And I expect many state legislatures are pressured by industry to pay robust prices for these products.

I’m eager to hear if any of my readers have further insights into this price problem. But from what I can tell, the bottom line is this: State Medicaid programs need to play hardball in negotiating insulin prices. With three companies in the market, and plenty of effective insulin formulations available to patients, they should be willing to walk away from the table when companies refuse to budge on prices.

I recognize that switching insulin products will be a burden for patients. But that’s the price we have to pay to avoid having to pay such a high price for insulin.